"Diversification... One from column A, one from column B." Choose diverse foods from a menu and you're an adventuresome diner. Choose diverse investments and you're just plain smart. Investors are diversified when they have money invested in at least three of the investment classes – stability of principal, income, growth & income, growth, aggressive growth, and global/international. Here's how diversification works and why the pros recommend it.

You allocate a percent of your plan contributions to different investment classes.

Your investments perform based on factors such as interest rates, industry trends, economic conditions, the value of the dollar, etc. The same factors (for instance, rising interest rates) may affect different investments differently.

Results in one sector tend to offset those in another.
For example, when growth investments do well, income investments may lag. But using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss in declining markets.

"You can get too much of a good thing." Most people just love ice cream, but a entire half-gallon can make you sick. Same, too, with investments. Do you crave the thrill and growth potential of stocks? Or, have you bought too much of your employer's stock? If you're not diversified, you may suffer the consequences when stocks drop.